By EMILY CLINGMAN
Coworking is projected to grow globally to 5.1 million members in 2022, according to studies conducted by Small Business Labs. The U.S. workforce is projected to be 40 percent freelancers, temps, independent contractors and solopreneurs by 2020, according to OfficeVibe. And as large corporations look for ways to save money on their real estate footprint, the need for coworking space will increase as well.
One company in New York, aiming to answer this need, has discovered a unique alternative to coffee shop working and expensive real estate commitments for coworking startups.
Kettlespace is turning to restaurants closed by day into a more suitable workspace for remote workers. Daniel Rosenzweig came up with the idea while working for another coworking company on its real estate team.
“During the day, I would be touring potential coworking spaces in cities around the country, but then at night would have to go back to my hotel and do my work there because many of these locations I was in didn't have coworking spaces yet,” Rosenzweig said. “As I walked the streets during the day, I noticed all these empty restaurants. Restaurants' margins are already very thin, and they make more of their money selling alcohol than selling food. And people don't drink that much during the day anymore.
“The world is becoming a little more health-centric and work-centric. Corporate budgets are becoming tighter. As a result of this, power lunches are not as common. It's hard to staff people during a lunch period if they're just going to break even or lose money. Even though they were still paying rent and utilities, many restaurants weren't open during the day. So, there was a big opportunity in my mind.”
Rosenzweig decided to approach restaurant owners about opening their doors to coworkers during daytime business hours as an additional source of revenue.
The restaurant owners were skeptical in the beginning. Their whole careers revolved around food and hospitality — not the corporate world. People who were involved in the corporate world were people who dined in the evening.
“So, when we're saying, hey, people want to work in your space during the day, it was a confusing proposition,” Rosenzweig said. “If all your revenue comes from selling food, then someone comes along offering a revenue stream based on providing space, it was jarring to them. They were skeptical about the types of people that would be coming in. What would they be doing? Why would they want to do this?”
But, Rosenzweig got a bite. Nick Lovacchini, owner of Distilled in New York's Lower Manhattan, agreed to give it a try. They put a “free coffee” sign outside, opened the doors and waited. After a few months, Distilled filled up every day. Lovacchini was such a fan of the concept, he decided to join Rosenzweig full time. With another partner, Andrew Levy, the trio committed to building the product and the three co-founded Kettlespace.
With the success of their pilot space at Distilled, the Kettlespace team found it easier to bring other restaurants on board. They brought the restaurant owners to Distilled to get a visual of a community of individuals with laptops out, doing work, chatting with each other, making connections and a coffee bar set up with snacks.
“Once they saw that, it kind of clicked,” Rosenzweig said.
Kettlespace has grown to 10 locations in New York and Brooklyn with thousands of members. It tripled last year in terms of spaces and more than quadrupled in membership.
Rosenzweig attributes the company's rapid growth to a few things.
“There is a large and growing demographic of independent workers,” he said. “Businesses that were once started in garages and home offices are now developing in coffee shops.
“Coffee shops are wonderful, but not necessarily conducive for work. People are standing over each other trying to get seats. There is a shortage of power outlets, it's kind of noisy, no one to watch your things when you go to the bathroom. It isn't a workspace, it's a coffee shop. Coffee shops make their money off transactions so their goal is to sell more coffee — not necessarily to provide a wonderful work space. Someone who buys one cup of coffee and sits there all day is hurting their business.
“So, it's a great opportunity to reallocate people from businesses that don't necessarily want workers because they aren't great for the overall business model, to spaces where they would be welcome, with high quality hospitality included in an environment that's beautiful and upscale. These restaurants put lots and lots of money building them out to be comfortable environments, but not adding the right value proposition during the day.”
Rosenzweig refers to Kettlespace as a hospitality platform, always solving for member outcomes and partner outcomes. From the member standpoint, Kettlespace saves a lot of money because there isn't a fixed rent it's stuck to.
“Like, if my costs go up, your costs go up. It doesn't work like that,” he said. “We're able to provide the most affordable coworking space on the planet because we don't have the long-term liabilities that every other coworking provider is stuck to.”
On the partner side, Kettlespace passes along a really high percentage, because although Kettlespace is facilitating the experience, it can't do that without the restaurant's buy-in.
“So, they're getting a very large piece of the revenue,” he said. “We keep just enough to keep this thing growing.”
The restaurants are getting another benefit.
In the beginning, the setup was simply coworking during the day, and restaurant at night, so everyone needed to be out at a certain time. It has evolved from that a bit. Now, the restaurants provide Kettlespace members special happy hour discounts on drinks and appetizers in an effort to convert them into customers after work. It varies by location, but the restaurants are now seeing 30-70 people stick around for happy hour, which leads to even another benefit — passersby curious about the action.
“When you see an empty bar or restaurant, there's always that gut feeling of why is this place empty,” Rosenzweig said. “So, having it be nearly full, if not full, at opening, is a great confidence builder for walk-by traffic to get them in the door. In economics, we call this the positive externalities of a busy-looking space. It's the best-case scenario for all involved, a home run for everyone.”
Rosenzweig is confident Kettlespace has some longevity. Its model, having no liabilities tied to it, yet pretty long revenue streams tied to it, is set up to grow in both a real estate growth market and a potential downside market. It helps that the restaurant spaces are eclectic and beautiful. It also helps that Kettlespace members are starting their own small businesses in places owned by small businesses.
“Small business helping small businesses,” he said. “I absolutely love the synergy.”
Coworking brings new life to malls
As consumers turn to online buying more and more, America's malls have lost their luster — which means mall owners are getting creative in keeping their buildings alive. Coworking presents a viable solution for vacant retail space, according to a study by investment management company Jones Lang LaSalle Inc.
In “Can Coworking Work at the Mall?” JLL Coworking presents a viable solution for vacant retail space by decreasing vacancy and driving additional foot traffic with a guaranteed daytime population. Added foot traffic may also help revitalize the center and attract new retail tenants. JLL predicts coworking space in retail properties will grow at a rate of 25 percent annually through 2023 and reach approximately 3.4 million square feet.
One successful example is Cowork at the Mall, a new retail incubator concept in Chicago's Water Tower Place. Occupying 15,000 square feet, the space is a mashup of coworking space, event space and merchandising space for retail and tech brands — hosting designers and inventors. Consumers can test new products and meet the makers. The variety of ideas and innovation aims to transform the mall into a gathering place, where experience is the real draw and sales happen organically.
In Boston, Spaceus — the brainchild of two MIT graduate students who saw an opportunity in the growing number of vacant storefronts and the lack of available workspace for artists — provides local artists with workspace, business development events, classes and complimentary refreshments, as well as retail space for artists to sell their work. Consumers are engaged through exhibits, public events, lectures and workshops and have the opportunity to interact directly with the artists. This model of combining coworking with retail showrooms, engaging the public and adding a stimulating, cultural experience to the center is one that JLL predicts will gain traction in the future.
Retail-based coworking spaces are successfully integrating work and play, bringing makers, workers and consumers together and bringing new life and experience to retail locations. JLL expects further growth in these hybrid spaces where the synergy between coworking and retail is maximized.
Office Supply stores joining the movement
In 2016, Staples partnered with Boston-based coworking startup Workbar to provide coworking space in its retail stores. In January, Staples Canada launched Staples Studio in Toronto — a new, innovative 4,500-square-foot coworking space inside the store. Members have access to a beautiful workspace with the latest furniture and technology, including wireless charging, standing desks, built-in live streaming, meeting rooms and more.
Last fall, in partnership with Proximity, Office Depot launched its first coworking space in Los Gatos, California, called Workonomy Hub. Rates range from $40 for daily drop-ins to $750 a month for private offices. Perks for coworkers include super-fast internet, free refreshments, app-based space booking, business services and access to other Proximity coworking locations across the country.